Consumers of the USA continue to spend money

Americans earned and spent more in August which is a sign that the economic recovery is continuing despite rising interest rates, a stock market crash, and fears of a possible recession.

The Ministry of Commerce said that in August the after-tax income grew by 0.4%. It is much more than the growth of consumer prices by 0.3% which means the second straight month of inflation-adjusted revenue growth.

Consumer expenditures creating the base for the American economy grew by 0.4% recovering from a decline in July, although it is still below growth rates earlier this year. The expenses fell this year as the higher prices have eroded the purchasing power of people. 

But the consumers didn’t close their wallets completely, they were particularly willing to spend the money on trips, restaurants, and other services they had left during the pandemic. In August the spending on services grew by 0.8% and the spending on goods fell which shows the gradual return to the normal consumption pattern that was broken during the pandemic. 

Revised data showed that in Spring consumer spending was growing faster than it was supposed before despite the common production volume falling for the second quarter in a row.  

A strong labor market gives a boost to consumption. Salary rose by 0.3% in August and by 8.6% year-over-year, as more people had received jobs and the concurrence for the staff led to higher wages. 

In total, Americans are still using the large pool of savings accumulated during the pandemic. This could allow consumers to continue spending even if the labor market cools or inflation speeds up again. However, there are signs that consumers may start to divest their accumulated savings. Households set aside 3.5% of their after-tax income in August, well below the pre-pandemic average of about 7%.